Shares of Goldman Sachs Group Inc. (NYSE: GS) tumbled on Monday after the investment bank reported weaker than expected profits for its most recent quarter. Lower advertising fees and weak underwriting activity were the main culprits for the disappointing earnings figures.
Q3 Earnings Summary
- Revenue: $8.32 billion
- Earnings: $4.79 a share
Goldman’s third-quarter profits amounted to $1.88 billion, or $4.79 a share, on revenue of $8.31 billion, the company reported Tuesday. Analysts were expecting per-share earnings to come in at $4.81. Revenues were slightly higher than expected but were still down 6% from year-ago levels.
The bank’s investing and lending division largely missed the mark, producing revenue of $1.68 billion that was 17% lower than a year earlier and below forecasts of $1.74 billion. Net revenues from equities tumbled 40% year-over-year to $662 million.
The company also set aside $291 million for credit losses, which is 67% higher than the same period a year ago.
David Solomon, Goldman’s chief executive officer, said the company remains on track to “execute on our strategic priorities, including investing in important growth opportunities in our existing and new businesses.”
Solomon said the bank’s performance in Q3 was solid “in the context of a mixed operating environment.”
Solomon took over as chief back in October 2018 and immediately began working on an internal review of the firm’s operations. As CNBC notes, the controversial initiative has led to departures among several long-time partners.
Soft Monetary Policy
Wall Street’s mega banks are facing several pressure points emanating from the U.S.-China trade war, declining economic growth and multiple rate cuts by the Federal Reserve. The Fed has lowered interest rates by a combined 50 basis points in its last two meetings and is expected to cut again before the year is over.
When the Fed lowers interest rates, banks like Goldman Sachs usually pass on the savings to their customers.
The U.S. central bank is scheduled to hold its next policy meeting Oct. 29-30. Traders have placed the likelihood of another quarter-point rate cut at 72.2%, according to CME Group’s Fed Fund futures prices.
GS Stock Update
Shares of Goldman Sachs rose 0.6% on Monday but were off more than 2% in Tuesday’s pre-market session. The stock is down nearly 13% from its 52-week high of $234.06. Goldman has a total market capitalization of $74 billion.
The stock has outperformed the S&P 500’s financial index this year, gaining nearly 23% since January. Financials as a whole are up 16% for the year.
Sorted by weight, Goldman Sachs is the sixth-largest component of the Dow Jones Industrial Average at 5.21%.
Disclaimer: Author holds no investment position in Goldman Sachs at the time of writing.